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The Honolulu Advertiser
Posted on: Saturday, July 1, 2006

Airlines tap programs for revenue

By Daniel Yee
Associated Press

Mark Erickson, a Culinary Institute of America master chef, checks into the Delta Air Lines Crown Room at Hartsfield Jackson Atlanta International Airport before boarding a flight to Newark, N.J. He is more interested in special perks than cashing in miles for free tickets.

RIC FELD | Associated Press

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ATLANTA Mark Erickson is the kind of flier that airlines love. Every Monday, he leaves for New York or California for his job as a Culinary Institute of America master chef. He returns to Atlanta on Friday night and does it all again two days later.

The 48-year-old man from Marietta, Ga., travels 200,000 miles a year. He looks for perks such as first-class upgrades or being able to board first instead of getting free airplane tickets for his frequent business.

"At my stage, miles don't really mean a lot to me the last thing I want to do is travel," he said. "For us, it's a bus ride; it's just a bus that has wings instead of wheels, and it's a long one."

The first frequent-flier program began in 1981 with American Airlines' AAdvantage as a way to keep profitable business travelers flying the same airline. Other airlines quickly followed.

Twenty-five years later, the programs have flown far off course from their original purpose. They also have turned into huge revenue producers on their own, a $4 billion industry that's even been listed by airlines as assets in bankruptcy, and in merger and acquisitions negotiations. Airlines have created a big business out of selling frequent-flier miles to outside companies that in turn use miles to woo their own customers.

"In the 1990s, the programs probably changed from less of a loyalty program that's what it was all about more into a rewards program that now the masses of people that just don't fly 20 times a year have the ability to earn free tickets," said Jeff Robertson, managing director of Delta's SkyMiles program.

Frequent-flier programs have grown to the tune of nearly 430 million members worldwide, said Randy Petersen, editor of Inside Flyer magazine. More than 14.2 trillion frequent-flier miles are in circulation worldwide, for an average of 33,035 per program member typically enough for one free ticket in the U.S.

"Every single frequent-flier program in North America is profitable. It's the best thing that ever happened to airlines," Petersen said. "There's no doubt that without those programs, maybe two or three airlines wouldn't be around today."

But frequent fliers say the perks aren't the same as in the past.

"What the airlines did was put so many seats in first class, when somebody puts their seat back you have the same problems you did in coach," said Todd Good, 46, who flies 200,000 miles each year for his real-estate auction business. He uses his miles for emergencies or donates them to charities.

But it now costs Good 50,000 miles to get a domestic ticket anytime he wants, as opposed to the previous cost of 25,000 miles, a level now reserved for a limited number of "saver" seats.

"From a business standpoint, they're losing money, and they have to do what they have to do to stay in business," said Good. "On the other hand, the miles I have from years ago that I'm trying to use today don't have the same weight."